KARACHI: Yields on Pakistan Investment Bonds (PIBs) rose by up to 20 basis points on Monday, a situation traders describe as critical for bond holders as profits are depleting fast.
A dealer trading in bonds said that one of the largest banks had entered the market and was selling bonds at higher yields which escalated the market’s fears about future interest-rate scenario.
The five-year bonds were traded at 7.05-10 per cent compared to Friday’s rate of 6.85pc; the three-year bonds at 6.54-57pc compared to 6.40pc; and the benchmark 10-year bonds at 8.30-35pc against 8.2pc on Friday.
“There is no room for further decline in the interest rate as the investors need to remain profitable. A further cut in the interest rate will prompt dollarisation,” said Rehan Atique, CEO of Shajar Capital.
Inflation measured through Consumer Price Index (CPI) has been on the rise since late 2015, reaching 3.9pc in March 2016 from 2.7pc in November 2015. Money market experts said inflation for April could surpass 4pc.
The government is going to face a big challenge of Rs1.6 trillion maturities of PIBs in mid-July this year. Mr Atique said the government needed to raise liquidity from the same market to face this challenge. There are fears that the interest rate will be increased to raise such a large liquidity.
Banks on Monday were selling bonds which were termed as the profit taking since most of the banks were selling old PIBs. “Basically, it’s because of political uncertainty and rising oil prices. Another reason for profit taking is that traders now think interest rate cannot go down from here,” said Faisal Mamsa, an expert on the subject.
Eman Khan of Tresmark said: “Political uncertainty, rally in oil and traders hitting stops were factors contributing to the substantial rise in yields. And there seems to be more room during this week.”
Another trader said that situation was critical since the increasing yields had resulted into heavy losses to bonds holders. The banks and investors hold about $4.8tr PIBs.
Traders also expressed fear with reference to Ramazan since inflation usually goes up during the holy month which means the government may create attraction with higher interest rate to raise a liquidity of size of Rs1.6tr.